There are pros and cons to holding a CPA license in California, and one troubling aspect is around requests for a letter incident to loan underwriting. First and foremost I want to be of service to clients. The requests are troubling because the [unspoken] risks around these letters make these letters for all intents and purposes, not an option. Furthermore, often the lender or broker, will make the request as if it is an all-or-nothing requirement of loan closure, and make the CPA out to be the “fall guy” or scapegoat; said to be responsible for failure to obtain loan underwriting approval.

On the surface, the requests are innocuous and seemingly simple to accommodate. The requests typically come in close proximity to loan closing, are typically made with urgency by the lender or broker, and are often deemed to be critical, even singularly critical, to loan closure.

Sound like something you’ve been asked to obtain from your CPA? Some of the specific requests include language around having your CPA write a letter “verifying self-employment,” “stating ownership in an entity,” or variations, such as that your CPA has prepared your returns, or “self-employment” returns, for the previous 3 years or so.

Under the covers, these requests these letters provide third-party verification of details in a loan application, and could transfer some of the potential liability to the CPA, in the event of default on the loan.

In CPA parlance, verifying the details or accuracy of any client information to a third party is known as an attestation. Attestation engagements are in fact one few functions unique to CPAs, as compared with other accounting professionals. So the issue isn’t the possibility that a CPA can draft such a letter, it is that the regulatory requirements behind performing such an engagement are time consuming, and involve considerable risks. Consequently, that translates to a costly fee for performing such an engagement in compliance with the regulatory standards.

Fortunately, there are alternatives to a letter from a CPA that may satisfy the lender request:

Alternative #1: A CPA letter which has language which clearly states services performed (see Exhibit 1)

Alternative #2: Sending a copy (with client written authorization) of the client’s tax forms, directly to the lender, with a simple cover page stating, “Please find attached the tax forms I prepared for the Client family for the past two years.”

Alternative #3: Inquire of the lender exactly what it is that they would like to confirm, and provide that information directly. This, in other words, asks the lender to request whatever is necessary in the case you didn’t have a CPA. In my experience, this might involve you providing a copy of your business license, a stock certificate, or similar direct evidence of ownership or self-employment.